What term life insurance is
Term life insurance covers you for a set number of years, such as 10, 20 or 30. If you pass away during the term, it pays your beneficiaries. You choose the amount based on your family's overall needs: income, debts, childcare, college and the house.
What mortgage protection insurance is
Mortgage protection is life insurance, usually term, chosen to match your home loan. The amount is close to your loan balance and the length matches the years left on the mortgage. The benefit is paid to your beneficiaries, who can pay off the house, keep up the payments or use it for other needs.
It's not the same as PMI
Private mortgage insurance protects the lender if you stop making payments. It doesn't pay your family anything. Mortgage protection life insurance is your policy, and you name who receives the money. Credit life insurance sold through some lenders is different again, because it pays the lender directly.
Level vs. decreasing benefits
A level benefit stays the same for the whole term, so as your loan balance falls, more of the money is left over for your family. A decreasing benefit shrinks over time to roughly follow the loan, which can cost less. Ask which one you're being quoted.
Side by side
| Mortgage protection | Term life | |
|---|---|---|
| Main purpose | Pay off or keep up with the mortgage | Replace income and cover any family need |
| Who receives the benefit | Your beneficiaries (check lender-sold policies) | Your beneficiaries |
| How coverage is sized | Matched to your loan balance and term | Based on your family's overall needs |
| Benefit over time | Level or decreasing, depending on the plan | Usually level |
| Common extras | Optional riders on some plans | Optional riders on some plans |
| Medical exam | Often health questions only; varies | Varies by amount, age and insurer |
Which one makes sense for you?
- Your main worry is the house. A plan sized to your loan may be a simple, focused fit.
- Your family depends on your income for more than the mortgage. A term policy sized to your overall needs may cover more ground.
- You want both. Many families combine a policy that matches the mortgage with additional term coverage, or add a smaller whole life policy for permanent needs.
- You have health conditions. Insurers view health differently, so comparing several can open up options.
Questions to ask before you buy
- Who is the beneficiary, and can I change it?
- Is the death benefit level or decreasing?
- How long does coverage last, and what happens when the term ends?
- Which riders are included, which cost extra and what triggers them?
- Is there a medical exam, or health questions only?
- If I refinance or move, does the policy stay with me?
Get help comparing
Matt MacMillan, an independent broker in Mooresville, compares mortgage protection and term life options from several insurers and explains the trade-offs in plain English. Reviews cost nothing and there's no obligation.
This article is general information, not a quote or an offer of coverage. Policy features, riders and availability vary by insurance company and state, and all coverage is subject to underwriting.
Sources
- Consumer Financial Protection Bureau, What is private mortgage insurance? www.consumerfinance.gov